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Calculate CAC Payback Period
Common Questions
Frequently Asked Questions
What is CAC payback period?
CAC payback period is the number of months it takes for the gross profit generated by a customer to recover the cost you spent acquiring them. Formula: CAC ÷ monthly gross profit per customer. A 6-month payback means a customer breaks even on month 6, and everything after is pure margin.
What is a good CAC payback period for ecommerce?
For DTC and ecommerce, under 6 months is considered healthy and supports paid scaling. 6-12 months is workable but cash-flow sensitive. Anything over 12 months strangles cash unless you have repeat-purchase compounding or external funding. Subscription businesses can tolerate longer paybacks because of locked-in MRR.
How is payback period different from LTV:CAC?
LTV:CAC measures total lifetime profit relative to acquisition cost (a ratio). Payback period measures how fast you recover that cost (timing). A business can have a strong 4:1 LTV:CAC and still go bankrupt if payback takes 18 months and they keep scaling ads. Payback is about cash flow; LTV:CAC is about unit economics.
Should I use gross margin or net margin to calculate payback?
Use gross margin (after COGS, before ad spend). Net margin already subtracts ad spend, so using it double-counts CAC. Gross margin is the cash each customer throws off that's available to pay back acquisition cost.
How does purchase frequency affect payback?
Hugely. A single-purchase product (frequency = 1) only generates gross profit once. A consumable bought 4x per year generates 4x the annual gross profit on the same first-order AOV, so CAC payback shrinks by roughly 75%. Repeat purchase is the cheapest way to compress payback.
Why does my actual payback feel longer than my calculation?
Three common reasons: (1) you're using gross margin before all fees (payment processing, shipping, refunds), (2) your reported CAC excludes some channels or assisted attribution, (3) repeat purchase happens later than your model assumes. Real cohort payback usually runs 20-40% longer than naïve formulas.